Sunday, September 8, 2013

Chinese Consumers Use the Market to Fight Back Against Absurdly High Prices Caused by Taxes & Tariffs

In China, consumers pay nearly $1 more for a latte at Starbucks than their U.S. counterparts. A Cadillac Escalade Hybrid Base 6.0 costs $229,000 in China, compared to just over $73,000 in the U.S.

Welcome to China's modern retail world, where the price of many goods is far higher than in many other countries, a disparity that is all the more stark considering the income differences. A basic iPad 2 is priced at $488 in China, where average per capita income is around $7,500. The same tablet is $399 in the U.S., where average per capita personal income totals $42,693.
Clothing and other apparel is on average 70% more expensive for consumers in China than in the U.S., according to data from SmithStreet, which compared the prices of 500 items of 50 brands in both countries.

Government taxes and import tariffs are to blame for a lot of the price discrepancy, but for years the burgeoning Chinese middle class also seemed willing to pay more for products with consumer cachet, particularly imported goods. And companies happily charged what the market would bear, even finding high prices could help provide a quality halo effect, winning customers psychologically. In many cases, when foreign manufacturers charged more, Chinese producers followed suit.

But today more Chinese consumers are pushing back, weary of sticker shock—and enlightened by the ability to compare prices elsewhere, thanks to the Internet and increased travel abroad....

With increased travel and e-commerce, consumers are comparing overseas prices with what they see in China-based stores and are waiting to buy goods when abroad, said James Button, a senior manager at Shanghai-based consultancy SmithStreet. This year Chinese shoppers made global headlines by clearing out U.K. and Hong Kong grocery shelves of baby formula, which wasn't only less-expensive than formula found inside China, but was also widely perceived by Chinese consumers as safer.

Sounds like an opening for US retailers, eh? Now if only we'd get our own taxes and tariffs in order.